MARKET UPDATES

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Mainland Chinese buyers disappear from Hong Kong real estate

HONG KONG (BLOOMBERG) - The world's priciest property market has lost its most important source of inbound investment. Mainland Chinese buyers are shying away from real estate in Hong Kong as the coronavirus pandemic clouds the economic outlook and keeps investors from traveling to the city. No commercial property transactions in the first quarter involved a buyer from mainland China, the first time that's happened since 2009, according to CBRE Group Inc., which tracks deals over HK$77 million (S$14 million). It's in stark contrast to a few years ago when Chinese investors were snapping up offices and retail space for eye-popping prices. While Hong Kong has won plaudits for keeping the spread of Covid-19 under control, the virus hit just as the city was starting to recover from months-long pro-democracy protests that sparked pitched street battles and violent clashes between mainland Chinese and Hong Kong residents. Bloomberg Economics estimates the city's small and open economy will be whipped by convulsions in global demand and trade, contracting around 2 per cent in 2020. "A lot of mainland buyers are taking a step back because of the economic outlook and the conflicts that made them feel unwelcome, "said Reeves Yan, head of capital markets at property services company CBRE. Capital controls imposed by Beijing on money flowing out of China are also hurting real estate in Hong Kong, Yan said. The absence of Chinese investors has contributed to lower prices, considering how aggressively some used to bid. In 2019, little-known Chinese company Henglilong Investments teamed with Hong Kong-based Gaw Capital to buy a pair of office towers from Swire Properties for US$1.9 billion (S$2.69 billion), the biggest office transaction that year. Office prices in Hong Kong declined 8.5 per cent in February from a year earlier, latest data from the city's Rating and Valuation Department show. The city's luxury residential market is feeling the impact too. Covid-19 has deterred people from traveling to Hong Kong for site visits considering all travelers arriving in the city are required to undergo a 14-day quarantine period. Wealthy individuals from China used to dominate the high-end home market with about 60 per cent of international buyers hailing from the mainland over the past 10 years, according to Savills Plc. Prices for luxury properties across Hong Kong dropped an average 4.5 per cent in the first quarter from a year earlier. The area around West Kowloon station, particularly favored by mainland Chinese, slumped almost 7 per cent, Savills data show. "The majority of the buyers are locals, "Raymond Lee, Savills CEO of Hong Kong and Greater China said at a media briefing last month. What domestic demand there is, however, remains robust. Hong Kong recorded its best weekend for secondary apartment sales in seven years last weekend. There have been no local Covid-19 infections in the city for 14 straight days. "Hong Kong people expect Covid-19 to be under control gradually and this has improved market sentiment, "Louis Chan, CEO for Centaline Property's residential division, said. Related Stories:  Read the latest on the Covid-19 situation in Singapore and beyond on our dedicated site here. Get The Straits Times app and receive breaking news alerts and more. Download from the Apple App Store or Google Play Store now.

Source: Straits Times
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Co-working spaces thrive in HK, struggle in Singapore shutdown

On a recent Friday afternoon, dozens of people sat hunched over laptops at TheDesk's six-story co-working space near Hong Kong's Central business district, while others chatted over snacks at tables on the outdoor terrace - all of them ignoring government advice to work from home to stop the spread of the coronavirus. Whether they were escaping tiny flats that are not conducive to work, or less concerned by a virus that has infected around 1, 000 residents compared with more than 110, 000 in New York, the surprise result is that co-working providers are thriving in Hong Kong, even as much of the world remains in lockdown. TheDesk signed up 25 per cent more new members in the first quarter of this year compared with the previous quarter, according to chief executive Thomas Hui. "I think it's especially because the living environment in Hong Kong is very cramped, so there are a lot of disruptions to people working from home, "he said. The Executive Centre, a high-end serviced-office operator, leased 33 per cent more desk space in the first quarter in Hong Kong compared with a year earlier. Across its 135 mostly Asian centres, it grew about 9 per cent in the first three months of this year. Companies are looking to conserve cash and retain flexibility rather than take the risk of committing to a long-term office lease, said chief executive Paul Salnikow. "The idea of signing a fixed lease with fixed rental commitment over a three-year period, which is the minimum term in Hong Kong, and then investing in the fit-out, buying the furniture, is an over-investment for most companies." It is a different story in Singapore, where a government-ordered shutdown of all but essential services means most workers have to stay home, with employers facing hefty fines or even jail if they do not enforce the measures. In the early days of the outbreak, marketing manager Jivan Tulsani preferred to use a co-working office rather than work from home, free from the distractions of family members and Netflix. "I have a very comfortable home, but it's too comfortable for work, "he said."It's difficult for me to resist the temptation to continue watching Homeland once the afternoon slump kicks in." Now he has no choice. The shutdown has forced most co-working spaces to close, remaining accessible only to workers providing essential services such as banking, logistics and security. Mr Tulsani's knowledge-sharing platform does not meet the criteria. Singapore's co-working spaces are popular with technology companies - from start-ups to multinational corporations - and the circuit breaker period has hurt operators such as JustCo. With all 17 of its centres closed to most workers, usage has declined, chief executive Kong Wan Sing said, without providing figures. Another problem which JustCo is facing is not receiving rent relief from its landlords despite the Government providing a property tax rebate to ease the strain on commercial tenants. To help its clients through the crisis, JustCo - which is backed by Singapore's GIC - unveiled its own multimillion-dollar relief package. It will benefit more than 3, 000 companies across its centres in eight cities including Singapore, Bangkok and Sydney. As for WeWork, which made co-working hip before almost imploding last year, while it has closed its offices in India indefinitely, it remains open in Singapore, China and other Asia-Pacific nations. In Australia, decals have been placed on floors and furniture to meet social distancing guidelines. Pantries are operating with limited amenities, and the beer taps have been shut off. In China, Hong Kong and Taiwan, all members must have their temperature checked and wear surgical masks or risk being refused entry, while pets are no longer allowed. With the world's biggest work-from-home experiment potentially reshaping the future role of the office, the test for the co-working industry will be to show it can provide a safe space for workers and companies seeking added flexibility. "The challenge for a multinational is that if you put your staff at a co-working space, can you guarantee that you create a safe environment?"said Mr Tim Armstrong, head of occupier services and commercial agency for the Asia-Pacific at Knight Frank. "There will be pressure on co-working groups to show they have gone above and beyond with their health and safety as well, if they want to entice multinationals."

Source: Straits Times
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Perennial sells 30% stake in 111 Somerset to Shun Tak for $155m

Perennial Real Estate Holdings is divesting its entire 30 per cent stake in 111 Somerset, known locally as TripleOne Somerset, to gambling mogul Stanley Ho's Shun Tak Holdings for $155.1 million in cash. 111 Somerset is a prime integrated development, comprising two premium-grade office towers and a retail podium. It is located in the Orchard Road area and next to Somerset MRT station, and is also near the affluent Devonshire and River Valley residential areas. Shun Tak already owns the remaining 70 per cent stake in the development, having bought it from a Perennial-led consortium in January 2017. In the current deal, Perennial, through a subsidiary, will sell its 30 per cent stake in Perennial Somerset Investors to Simply Swift Limited, a unit of Shun Tak. Perennial Somerset Investors owns 111 Somerset. Perennial said the transaction is in line with its"active capital recycling strategy to rebalance its portfolio, enhance its financial flexibility and maximise its returns to shareholders". The real estate player stands to net a pre-tax gain of about $25 million from the deal. The sale is based on a total property value of $1.14 billion, translating to $2, 250 per square foot on net strata area, The Straits Times understands. The consideration was determined based on factors including the current and expected market value of 111 Somerset on completion of an asset-enhancement programme, which is under way. Just last year, the property had undergone a major asset-enhancement exercise costing about $120 million. Works had involved enhancing the retail offerings at the retail podium, incorporating medical suites of about 32, 000 sq ft, and sprucing up the office lobby and common areas. The transaction is expected to be completed on May 31 or the date falling five business days from the date on which all condition precedents are satisfied, whichever is later. Post-transaction, Perennial (Singapore) Retail Management will remain the property and project manager of 111 Somerset.

Source: Straits Times
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Perennial sells stake in TripleOne Somerset to casino king Stanley Ho's Shun Tak for $155m

Perennial Real Estate Holdings is divesting its entire 30-per-cent stake in 111 Somerset, known locally as TripleOne Somerset, to gambling mogul Stanley Ho's Shun Tak Holdings for $155.1 million in cash. 111 Somerset is a prime integrated development, comprising two premium-grade office towers and a retail podium. It is located in the Orchard Road precinct and next to Somerset MRT station, and is also near the affluent Devonshire and River Valley residential areas. Shun Tak already owns the remaining 70 per cent stake in the development, having bought it for $1.26 billion from a Perennial-led consortium in January 2017. In the current deal, Perennial, through a subsidiary, will sell its 30-per-cent stake in Perennial Somerset Investors to Simply Swift Limited, a unit of Shun Tak. Perennial Somerset Investors owns 111 Somerset. Perennial said the transaction is in line with its"active capital recycling strategy to rebalance its portfolio, enhance its financial flexibility and maximise its returns to shareholders". The real estate player stands to net a pre-tax gain of about $25 million from the deal. ST understands that the sale is based on a total property value of $1.14 billion, translating to $2, 250 per square foot on net strata area. The consideration was determined based on factors including the current and expected market value of 111 Somerset upon the completion of an asset-enhancement programme, which is currently underway. Just last year, the property had undergone a major asset-enhancement exercise costing about $120 million. Works had involved enhancing the retail offerings at the retail podium, incorporating medical suites of about 32, 000 sq ft, and sprucing up the office lobby and common areas. The transaction is expected to be completed on May 31 or the date falling five business days from the date on which all condition precedents are satisfied - whichever is the later. Post-transaction, Perennial (Singapore) Retail Management will remain the property and project manager of 111 Somerset.

Source: Straits Times
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Coronavirus: Co-working thrives in Hong Kong, struggles in Singapore shutdown

On a recent Friday afternoon, dozens of people sat hunched over laptops at TheDesk's six-story co-working space near Hong Kong's Central business district, while others chatted over snacks at tables on the outdoor terrace - all of them ignoring government advice to work from home to stop the spread of coronavirus. Whether escaping tiny apartments that aren't conducive to work, or less concerned by a virus that has infected around 1, 000 residents compared to more than 110, 000 New Yorkers, the surprise result is co-working providers are thriving in Hong Kong, even as much of the world remains in lockdown. TheDesk signed up 25 per cent more new members in the first quarter versus the quarter prior, according to chief executive officer Thomas Hui. "I think it's especially because the living environment in Hong Kong is very cramped, so there are a lot of disruptions to people working from home, "Hui said. The Executive Centre, a high-end serviced-office operator, leased 33 per cent more desk space in the first quarter in Hong Kong than a year earlier. Across its 135 mostly Asian centres, it grew about 9 per cent in the first three months of the year. Companies are looking to conserve cash and retain flexibility rather than take the risk of committing to a long-term office lease, said CEO Paul Salnikow. "The idea of signing a fixed lease with fixed rental commitment over a three-year period, which is the minimum term in Hong Kong, and then investing in the fit-out, buying the furniture, is an over-investment for most companies, "he said. It's a different story in Singapore, where a government-ordered shutdown of all but essential services means most workers have to stay home, with employers facing hefty fines or even jail if they don't enforce the measures. In the early days of the outbreak, marketing manager Jivan Tulsani preferred to use a co-working office rather than work from home, free from the distractions of family members and Netflix. "I have a very comfortable home, but it's too comfortable for work, "said Tulsani."It's difficult for me to resist temptation to continue watching 'Homeland' once the afternoon slump kicks in." Now he has no choice. The lockdown has forced most co-working spaces to close, remaining accessible only to workers providing essential services such as banking, logistics and security. Tulsani's knowledge-sharing platform doesn't meet the criteria. Singapore's co-working spaces are popular with technology firms - from start-ups to multinational corporations - and the lockdown has hurt operators like JustCo. With all 17 of its centres closed to most workers, usage has declined, CEO Kong Wan Sing said, without providing figures. Another problem JustCo faces - not receiving rent relief from its landlords despite the government providing a property tax rebate to ease the strain on commercial tenants. To help its clients through the crisis, JustCo - which is backed by Singapore's sovereign wealth fund GIC - unveiled its own multi-million dollar relief package. It will benefit more than 3, 000 companies across its centres in eight cities including Singapore, Bangkok and Sydney. As for WeWork, which made co-working hip before almost imploding last year, while it has closed its Indian offices indefinitely it remains open in Singapore, China and other Asia-Pacific nations. In Australia, decals have been placed on floors and furniture to meet social-distancing guidelines. Pantries are operating with limited amenities, but the beer taps have been shut off. In China, Hong Kong and Taiwan, all members must have their temperature checked and wear surgical masks or risk being refused entry, while pets are no longer allowed. With the world's biggest work-from-home experiment potentially reshaping the future role of the office, the test for the co-working industry will be to show it can provide a safe space for workers and companies seeking added flexibility. "The challenge for a multinational is that if you put your staff at a co-working space, can you guarantee that you create a safe environment?"said Tim Armstrong, head of occupier services and commercial agency for Asia Pacific at Knight Frank."There will be pressure on co-working groups to show that they have gone above and beyond with their health and safety as well, if they want to entice multinationals in."

Source: Straits Times
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Coronavirus: New measures to give Reits more flexibility in raising funds, managing cash flow

Singapore real estate investment trusts (S-Reits) will have more flexibility in managing cash flow and raising funds in the challenging operating environment, thanks to new measures announced on Thursday (April 16). The steps comprise an extension of the deadline for distribution of taxable income, a higher leverage limit and the deferment of new regulatory requirements. The aim is to give Reits more breathing room in the midst of a severe economic slowdown resulting from the coronavirus pandemic. The timeline for S-Reits to distribute at least 90 per cent of their taxable income will be extended from three months to 12 (after the end of financial year 2020) to qualify for tax transparency. Tax transparency means an S-Reit is not taxed on income distributed to its unitholders. This extension is only applicable for distributions made from taxable income that is derived by an S-Reit during the 2020 financial year. An S-Reit with a financial year ended on March 31 will now have until March 31, 2021, to distribute at least 90 per cent of its taxable income derived in the 2020 year. Those with financial years ended on Dec 31 will have until Dec 31, 2021, to make their 2020 distributions to unitholders. S-Reits typically distribute the bulk of their income to unitholders so they tend to hold lower cash reserves. The extension will give S-Reits more flexibility to manage their cash flows. The Inland Revenue Authority of Singapore will provide more details of the change by early May. Another measure involves raising the leverage limit for S-Reits from 45 per cent to 50 per cent. This takes immediate effect and will give them greater flexibility to manage their capital structure, said the Monetary Authority of Singapore (MAS). Mr Chew Sutat, head of global sales and origination at the Singapore Exchange, noted:"The raised leverage limit for S-Reits is extremely timely for managing capital structure in the short term, but also sets S-Reits up for long-term success by being more competitive. "This, together with the enhanced share issue limit, makes equity fundraising much easier for S-Reits and allows them additional debt headroom." The MAS will also defer implementing a new minimum interest coverage ratio requirement to January 1, 2022 - another move to lessen the impact of the pandemic on earnings and cash flows. The higher leverage limit and the enhanced share issue limit announced by SGX RegCo last week will allow S-Reits to have continued access to different funding channels, including borrowing from banks, issuing bonds and raising equity. S-Reits will have to disclose their leverage ratios and interest coverage ratios in annual reports and interim financial results.

Source: Straits Times
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China home prices resume upward climb as coronavirus impact abates

Residential home prices in China rose in March as pent-up demand after a period of lockdown during the height of the coronavirus supported sales. New-home prices in 70 major cities, excluding state-subsidised housing, gained 0.13 per cent in March from February, National Bureau of Statistics data released on Thursday (April 16) showed. Price growth effectively stalled in February because there were hardly any transactions as people stayed at home. Values for second-hand residences, which are free of government intervention, rose 0.05 per cent after a slim decline in February. "Pent-up housing demand is being released gradually as the economy and life start to get back on track, "the bureau's chief statistician Kong Peng said in a statement along with the data. The reading is the first proper insight into China's virus-hammered home market as authorities gradually lift restrictions and allow residents to get back to work. Last month, prices in about one-quarter of cities monitored by the statistics bureau were deemed unchanged due to a lack of activity. Sales are recovering quickly as authorities allow developers to reopen showrooms and property agents conduct viewings. New apartment sales tripled in March from February, E-House China Holdings data on 27 major cities show. Whether the slight home-price growth in March is a precursor to a full rebound remains to be seen. State-owned newspapers have reported that the virus won't change President Xi Jinping's stance that homes are for living in, not for speculation. There's also a chance China's provinces will shut down again should there be a second surge in virus cases. If that happens, the housing-market fallout could be akin to the hit taken during the 2008 global financial crisis, according to S&P Global Ratings. For now at least, developers are seizing upon the momentum to ramp up sales. The country's major home builders have achieved better-than-expected online transactions by offering price discounts of between 5 per cent and 10 per cent, according to CGS-CIMB Securities analyst Raymond Cheng. Looking beyond February's distortion due to the outbreak, the price growth in March is still weaker than January. In March versus February, the number of cities seeing a slide in values in the new-home market held broadly stable and even increased in the second-hand market. Prices in two cities in Hubei province, the original epicenter of pandemic, are still considered unchanged, the statistics bureau said.

Source: Straits Times
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CDL acquires 51% stake in China's Sincere Property

City Developments Limited (CDL) is acquiring a 51.01 per cent stake in a Chinese developer for 4.39 billion yuan (S$880 million). Part of the transaction involves a call option that CDL can exercise to buy an additional 9 per cent interest in the firm for 0.77 billion yuan at the same entry valuation. This will allow CDL to acquire a 60.01 per cent stake in the firm - Sincere Property Group - for a total of 5.16 billion yuan. "Given the adverse impact of the Covid-19 crisis and the global uncertainty, CDL has taken the opportunity to negotiate new terms for its investment into Sincere Property, which are significantly improved over the terms announced last year, "said CDL in a statement to the Singapore Exchange after the market closed yesterday. CDL had said in May last year that it would acquire a 24 per cent stake in Sincere for 5.5 billion yuan. The investment was to be split equally into two tranches - a four-year interest-bearing loan of 2.75 billion yuan and a tranche of 2.75 billion yuan. The second was to have been invested once certain conditions were fulfilled. The deal was not completed by the fourth quarter last year as expected"due to a variety of factors", said CDL. Sincere will use part of the 4.39 billion yuan to repay a loan extended earlier to it by CDL. Once the deal is completed, CDL will hold a joint controlling interest in Sincere through an offshore investment vehicle. Sincere chairman Wu Xu's stake will fall from 60 per cent to 29 per cent, while Chinese developer Greenland Holdings Group's holding will halve from 40 per cent to 19.99 per cent. The new transaction values Sincere at 8.6 billion yuan, almost 50 per cent below its net asset value of 16.48 billion yuan as at its unaudited consolidated financial statements for the year ended Dec 31, 2019. The deal will lift CDL's portfolio allocation in China from 13 per cent to 17 per cent with its presence growing from three cities to 18. It will also broaden its capabilities across property segments to include new asset classes such as business parks. The deal gives CDL access to Sincere's development land bank of 9.2 million sq m, with 64 development projects across mostly Tier 1 and 2 cities in China. Sincere also has a portfolio of 27 investment properties in the retail, office and hospitality segments.

Source: Straits Times
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Industrial rents to moderate with manufacturing hit by virus: Report

Industrial rent in most segments will moderate this year as shrinking global demand takes its toll on the local manufacturing sector, a report said yesterday. It noted that location will be a big factor in determining how rents move, adding that factories and better-quality industrial buildings will be more affected by the coronavirus due to their outlying locations. Real estate firm Cushman & Wakefield said the number of new leases will fall as most firms have shelved plans to relocate while renewing current leases instead. "Businesses are unwilling to allocate any additional (capital expenditure) during this period, "it noted. However, it expects warehouse rents to hold up better due to increased online deliveries. Ms Christine Li, Cushman & Wakefield's head of research for Singapore and South-east Asia, said the controls on people movement have resulted in the unprecedented growth of e-commerce. "Given the increased demand for delivery of online purchases of fresh food, medical supplies and general essential purchases, cold chain logistics facilities will probably register heightened leasing activity ahead, "she added. Cushman & Wakefield still noted some positive market developments in the first quarter despite the outbreak. These include the launch of GrabFood's 6, 000 sq ft cloud kitchen at Lam Soon Industrial Building, and German event organiser Deutsche Messe signing a memorandum of understanding to host its flagship manufacturing trade show in Singapore for an additional five years.

Source: Straits Times
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Circuit breaker measures to take toll on new home sales

Volume falls in March and set to stay low with show-flats shut, launches pushed backGrace LeongBusiness Correspondentgleong@sph.com.sgPrivate home sales slipped last month and are poised to stay low this month as show-flats close and more launches are expected to be pushed back on account of the circuit breaker measures. Developers in Singapore sold 660 private homes last month - the worst showing for the month of March in five years - down 32 per cent from 976 in February, as the property market grappled with increasingly stringent safe distancing measures. "This year's March, April and May, the traditional peak sales period, would undoubtedly be dry. April's numbers would plunge possibly the most due to the forced shutdown of developers' show-flats and work-from-home orders, "said Mr Karamjit Singh, chief executive of Showsuite Consultancy. Mr Wong Xian Yang, Cushman & Wakefield's associate director of research, Singapore and South-east Asia, said the timing is"especially unfortunate as March to May tend to be bumper months for developer sales. From 2015 to 2019, developer sales during March to May usually made up 26 per cent to 38 per cent of total sales in those years". Last month, a total of 578 new private residential units were up for sale, of which 101 were in the prime district or core central region, 163 in the city fringe or rest of central region, and 314 in the suburbs or outside central region. In comparison, 933 units were launched for sale in February, and 1, 812 units were released in March last year. Year on year, the number of new private homes sold last month was down 37 per cent from 1, 054 units in March last year. The figures, released by the Urban Redevelopment Authority yesterday, exclude executive condominium (EC) units, which are a public-private housing hybrid. Excluding Ola EC, which sold 170 units at a median price of $1, 139 psf, the four new private home launches did not do well. The 378-unit Kopar At Newton sold one unit at $2, 385 psf last month, but reportedly sold 77 units this month. The other prime district launch - 19 Nassim - sold one unit, while 77 @ East Coast and Tedge, both in the suburbs, sold three and eight units respectively. Existing projects like JadeScape moved 76 units at a median price of $1, 719 psf, Treasure at Tampines sold 69 units at a median price of $1, 355 psf, and Parc Esta transacted 63 units at a median price of $1, 657 psf. Including ECs, developers moved 904 units last month, down 31 per cent from February's 1, 315 units, and nearly 15 per cent lower than the 1, 062 units sold in March last year. Ms Tricia Song, head of research for Singapore, Colliers International, noted that including ECs, new launches made up only 20 per cent of developers' sales last month, compared with 55 per cent in February. Excluding ECs, this figure was even lower, at 2 per cent last month versus 40 per cent in February, she said. While virtual show-flats saw interest, actual sales have not materialised as buyers prefer to get a sense of the actual size, layout and finishes. Documenting property purchases and payments during the circuit breaker period has also proved challenging, Ms Song said. JLL's senior director of research and consultancy Ong Teck Hui said:"New private home sales in March marked a significant shift in the primary market. In January and February, new private home sales totalled 1, 596 units, which was 80 per cent higher than the same period last year, reflecting an upward market momentum. However, primary market sales in March dropped 37 per cent from that in March 2019." New sales launches could be scaled back due to uncertainty over whether the circuit breaker may be extended, which would reduce transaction volumes this year, he added.

Source: Straits Times
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